Turnbull government to release MYEFO budget update a week before Christmas

Treasurer Scott Morrison will deliver a better than expected mid-year budget update a week before Christmas, as company profits and high employment figures stir the economy back to life.

Fairfax Media understands the mid-year update, one of the key events on the government’s economic calendar, is likely to be released on December 18 and lay out a path back to surplus while also allowing the Coalition to toy with income tax cuts next year.

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Economy falls short of expectations

Treasurer Scott Morrison has trumpeted new figures showing the Australian economy has grown by 2.8 per cent over the year to September.

The government has become more cautious in its outlook after sluggish wage growth blew a $24 billion hole in last year’s projections and pushed the deficit out to 2019-2020.

Deloitte Access Economics says it expects total revenue in 2017-18 to beat the budget forecast by $2.7 billion and for a $3.6 billion improvement in the deficit.

Treasurer Scott Morrison Photo: Alex Ellinghausen

The Turnbull government is banking on households emerging from a spending slump to stir the economy beyond the 2.8 per cent growth rate it experienced in the year to September and shore up Australia’s AAA credit rating.

Gross domestic product figures released on Wednesday showed weak consumer spending, driven by fears of bill shock through rising energy prices, was offset by a 2 per cent bounce in private spending and a 7 per cent surge in government capital investment.

“The turn around in private investment has been incredibly important to the numbers we see coming through,” Treasurer Scott Morrison told question time on Thursday.

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Employment – now in its 13th month of strong gains – is likely to offset sluggish wage growth, after tens of thousands of extra jobs pushed up the national wages bill 1.2 per cent in the three months to September.

The wages bill jumped up by 1.2 per cent in the three months to September. Photo: Jessica Shapiro

A lack of wage growth, which on a per-capita basis has been stuck at or below the cost-of-living, reduces the amount of tax revenue a government can collect from workers.

Last year, it resulted in $3.7 billion writedown on government receipts, but with a tightening labour market, leaders believe a more optimistic result will be achieved this year.

The government will continue its push for company tax cuts from 30 to 25 per cent for all companies, including those with revenues of more than $50 million, when Parliament returns from the long summer break.

There is a growing urgency within the Coalition to push the matter forward as the US moves towards the most significant tax cuts in decades.

Treasurer Scott Morrison will deliver a better than expected mid-year budget update a week before Christmas, as company profits and high employment figures stir the economy back to life.

Income tax cuts are now also being dangled in front of voters, possibly in time for an election next year as middle-income earners prepare for their tax bill to rise through bracket creep.

The government is moving towards its tax take limit of 23.9 per cent of GDP, a figure it is expected to reach without tax cuts by 2022.